On track to make a decent living: Outlook

Tuesday 31 January 1995 00:02 BST

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Whether or not you believe rail privatisation will be hideous for passengers, it is beginning to look as if some of the train-operating franchises will be an attractive proposition for commercial operators. With seven weeks to go until the deadline, more than a hundred companies have put their names down as potential bidders for the first batch of franchises. Virgin, British Airways and Hanson are among those who have filled in the necessary pre-qualification documents. A further batch of documents has been sent out by Samuel Montagu, advisers on the franchise sale, to cold-call venture capital firms and other intermediaries. (A message from the platform annoucer: all those who thought privatisation was about reducing red tape, please think again).

The volume of paper flying around is not necessarily a guide to the amount of genuine interest. There is little cost and no penalty in asking for the outline documents and sending a few details. The pre-qualification process is simply a vetting device toprove a bidder's financial and managerial strength.

Bear in mind too that a large proportion of the interest may well be for just a handful of franchises. Chief among these is the Gatwick Express, which is the nearest thing on offer to a viable commercial operation that could stand on its own feet. Airlines have an obvious interest in owning the access route from London to the airport, if only to advertise themselves to captive passengers from other airlines.

The probability, however, is that a significant proportion of the interest shown is genuine. One reason is that the franchises are being sold by quasi-auction. Bidders will be competing, not on the price they must pay to the Government, but on the amountof subsidy they will accept to take the service off the Government's hands. The lower the subsidy, the better the chances of winning, as long as the operator has passed various tests of corporate acceptability.

So at some as yet unclear level of subsidy, it will be possible to make a sensible bid for any of the first batch of franchises, once track access charges, the leasing arrangements and other details are clear.

The second is that the capital investment required is negligible, since the tracks belong to Railtrack and the rolling stock will be leased. If the franchise goes wrong, the operators may be bled dry, but it will be by drip-feed rather than in in one fell swoop.

Having negotiated the subsidy level, the main risk that remains is whether the franchise company can control costs and run the service in a way that keeps the passengers using it. A large part of the costs will be outside the operators' control. But anyone who knows anything about making services user-friendly - and thinks, heretically, that trains should be run for the convenience of travellers, not for railwaymen or bureaucrats - should have scope to make a decent living.